Standing Senate Committee on National Finance (44th Parliament, 1st Session)

THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE

EVIDENCE

OTTAWA, Tuesday, March 19, 2024

The Standing Senate Committee on National Finance met this day at 3:06 p.m. [ET] to study Supplementary Estimates (C) for the fiscal year ending March 31, 2024.

Senator Percy Mockler (Chair) in the chair.

[English]

The Chair: Honourable senators, I wish to welcome all senators as well as the viewers across our great country watching us on sencanada.ca.

[Translation]

My name is Percy Mockler, senator from New Brunswick, and chair of the Senate Committee of National Finance.

I would now like to ask my colleagues to introduce themselves starting from my left.

Senator Forest: Éric Forest, Gulf senatorial division in Quebec. We welcome you all.

Senator Gignac: Clément Gignac from Quebec.

Senator Galvez: Rosa Galvez from Quebec.

[English]

Senator MacAdam: Jane MacAdam, Prince Edward Island.

Senator Pate: Welcome, and I live here in the unceded, unsurrendered territory of the Algonquin Anishinaabe.

Senator Kingston: Welcome. Joan Kingston, New Brunswick.

Senator Ross: Hello. Krista Ross, New Brunswick.

Senator Smith: Larry Smith, Quebec.

Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.

The Chair: Thank you, honourable senators.

Today we will begin our study on the expenditures set out in Supplementary Estimates (C) for the fiscal year ending March 31, 2024, which was referred to this committee by the Senate of Canada on February 26, 2024.

[Translation]

We have the pleasure of welcoming Yves Giroux, Parliamentary Budget Officer. Mr. Giroux, thank you for being available for taking the time to help our committee.

[English]

It is about the transparency, accountability, predictability and reliability of our budgets.

Mr. Giroux is accompanied by Jill Giswold, Senior Analyst, Office of the Parliamentary Budget Officer, and Kaitlyn Vanderwees, Analyst, Office of the Parliamentary Budget Officer. Thank you as well for accompanying our Parliamentary Budget Officer.

It is always very enlightening, Mr. Giroux, to welcome you. Your testimony always helps our committee focus on our four main subject matters: transparency, accountability, reliability and predictability. On this note, the floor is yours for your comments, to be followed by questions from the senators.

[Translation]

Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Honourable senators, thank you for inviting us to appear today. I’m pleased to be here to discuss our report on the 2023-2024 Supplementary Estimates (C), which were released on February 22.

Joining me today are our senior analysts for this report, Jill Giswold and Kaitlyn Vanderwees. The government’s 2023‑2024 Supplementary Estimates (C) present additional budget authorities of $13.2 billion. Voted authorities, which require parliamentary approval, total $8.9 billion.

Legislated authorities, for which the government has already received spending authority from Parliament, total $4.3 billion. This increase is largely attributable to a $3.2 billion rise in interest on unmatured debt.

[English]

Major areas of planned spending in the government’s final supplementary estimates for 2023-24 include personnel, national defence, Indigenous program delivery and student financial assistance.

Supplementary Estimates (C) include a further $409 million for Budget 2023 measures, bringing total planned spending to date on Budget 2023 to $10.4 billion, excluding off-cycle measures. To support parliamentarians in their scrutiny of Budget 2023, my office has prepared and published tracking tables that list all budget initiatives, planned spending amounts and the corresponding legislative funding authority.

The Chair: Thank you, Mr. Giroux.

Honourable senators, we will commence the first round with five minutes each.

Senator Marshall: Thank you, Mr. Giroux, to you and to your officials for being here.

I have gone through most of your reports and a lot of the government financial documents, and I have come to the conclusion that the government is not good with numbers. There are several reasons for that.

In your report on the capital spending, which you released a little while ago, they are continuing to push their capital expenditures further into the future, and they also do not spend what they have received funds for. The Main Estimates themselves are incomplete. We will get a budget mid-April, so the numbers are going to escalate, and we just received the Main Estimates, so that will change. The debt-servicing costs projections keep changing with each financial document. The personnel costs, as per your report — the FTEs were supposed to decline in 2023-24, but they went up instead. The professional services budget was supposed to decrease, but it has actually increased. Looking at their debt strategy last April compared to November, they have incrementally borrowed $71 billion more.

The numbers seem to keep changing. Do you have comments as to the reason for that? What is the problem that the government cannot provide us with more reliable information?

Mr. Giroux: Senator, I think you have summarized the last several of my reports in a short sentence. I may borrow that for future reference.

I am not sure if there is a problem per se — or I should say it is a problem for many people, but I wouldn’t say it is the government not necessarily being good with numbers or whether they know what the real plan is but they don’t tell us what the real plan is. They indicate to Canadians and parliamentarians, for example, that the number of FTEs will decrease. Then, as next year’s plans get released, we see that there’s no decrease. There is an increase. We see that consistently on FTEs. We see that with the overall spending plan. For example, if you look at any budget, there is a spending track. In the fall statement, there is a spending track that is revised upwards. It keeps going that way. Whether it is the government not planning well enough or having an implicit plan that it doesn’t want to fully reveal, that is the big question. I do not know the answer to this one.

Senator Marshall: It always seems that the change in the numbers is detrimental in that they don’t meet their performance targets. They don’t come in better than what they planned; they always come in worse than they planned. It seems like there is something not quite right there. Can you think of anything where they have come in better than planned as opposed to worse than planned? That would balance it out.

Mr. Giroux: We have had pleasant surprises on the deficit.

Last year, I think, and the year before, or a few years in a row, the plan was to have a deficit at a certain level, and the final number came in lower in terms of deficit, so better than expected deficit. It has happened at least twice, if my memory serves me well. That was due in good part to lower than expected uptake for spending on COVID-19 relief measures or better than expected revenues, so it has happened, but generally speaking, when it comes to the spending track, it keeps being revised upwards, as you pointed out.

Senator Marshall: Some of the numbers where the deficit comes in are pretty close to what they thought, or a little bit better. The impression I am getting is that they are holding back on some of their budget initiatives in order to come in on target. Do you see any sign of that?

Mr. Giroux: I am not sure if it is conscious or not. We see that departments are lapsing significant amounts of money, but lapsing is not necessarily a bad thing. As a taxpayer, I would rather have departments lapsing money than spend at any cost to avoid lapsing. Lapsing can be a sign of prudent management, but it can also be a sign of less-than-optimal planning. That is as much as I have to say on that aspect.

Senator Marshall: Thank you.

[Translation]

Senator Forest: I’d like to thank the witnesses for being here. It’s always very interesting. My first question is about military procurement. Almost 17% of the sums requested concern the untendered purchase of 16 Poseidon aircraft built by Boeing.

I can’t understand the logic of making such equipment investments without a call for tenders, especially when there could be a Canadian company bidding after submitting a well‑prepared quote. How can this kind of decision be explained in terms of procurement, the size of the contract and, above all, the origin of the manufacturer? How can this logically be explained for the sound management of public funds?

Mr. Giroux: That’s a question the Minister of National Defence could answer better than I could. However, I can share my impression based on the discussions and work we’ve done on national defence issues.

With regard to replacing the CP-140 Auroras with Poseidon aircraft, the question that arose — and still does, incidentally, given that the decision has been made — is that if the government had decided to go to tender, there was a risk that, by the time the tender was concluded, the Boeing Company, which manufactures the Poseidon aircraft, would no longer be manufacturing them, which would have eliminated a potential supplier.

So, going to tender would apparently have delayed the process so much that the Poseidon aircraft would no longer have been an option for the federal government, and the alternative, as we understand it, was an unproven aircraft from Bombardier. This is the explanation we seem to be given for the lack of a call for tenders to replace the Aurora aircraft.

Senator Forest: The perception seems to be that the Poseidon aircraft in question is to be discontinued.

Mr. Giroux: Yes.

Senator Forest: So, we’re buying “new old stock” instead of requesting a quote on a specific estimate. I must confess, I can’t quite grasp the logic behind this. I realize the Poseidon planes fly high in the clouds, but I simply can’t understand this administrative rationale.

Mr. Giroux: As I’m neither a procurement nor a military procurement specialist, I’m not in a position to say whether the Poseidon aircraft is a better choice than the rival offering from Bombardier, or vice versa.

We simply don’t know. The minister and senior National Defence officials should be able to provide a satisfactory answer to that question.

Senator Forest: On March 5th, you stated in your economic update that inflation should return to its 2% target by 2024. Inflation is well on its way down. In your analysis, is this reduced inflation the result of the Bank of Canada’s monetary policy?

Mr. Giroux: It’s a combination of factors. Monetary policy has played a role in moderating demand in several sectors of the economy. There were also problems in supply chains that made it difficult to obtain goods. Anyone who tried to buy a car in 2021-2022 or even 2023 struggled to find the model they were looking for. That’s one example of a supply chain that wasn’t working very well and was pushing up many prices. The situation has now been resolved.

In addition, raw material prices are generally falling. However, the rise in interest rates has clearly helped to ease demand. Both factors have been working in the same direction and pushing in the same direction: demand is falling and supply is improving. This is largely the result of the Bank of Canada’s work, but also of the economic sector and market forces adjusting in the wake of the pandemic’s disruptions.

Senator Forest: In the same vein, some analysts believe that the Bank of Canada is ill-equipped to fight inflation when it’s linked to supply. In fact, this morning, Claude Lavoie said in a Globe and Mail article that structural changes are needed to better equip the Bank of Canada to deal with such situations. Do you agree with that statement?

Mr. Giroux: Giving the Bank of Canada a price stability mandate is probably a very good idea. The more you vary or add to the mandate of an institution like the Bank of Canada — whose tools are limited — the more likely you are to end up with a suboptimal situation. The bank’s price stability mandate, given the tools at its disposal, seems to me an appropriate way forward. If we wanted to change that mandate and add to it, we’d probably have to give the bank more tools, because those tools are currently limited to interest rates, liquidity and supervision of the banking sector, to a certain extent. When the toolbox is limited, the mandate can’t be overly broad either. As the saying goes, when you have a hammer, every problem looks like a nail. Still, the bank’s toolbox is limited.

Senator Forest: We’ll continue to say that your testimony is as good as the Bank of Canada.

Senator Gignac: I’d like to welcome Mr. Giroux and his team. Allow me to speak on behalf of several of my colleagues in thanking you for the work you do as Parliamentary Budget Officer, so much so that Quebec’s National Assembly is currently considering creating the position of Parliamentary Budget Officer, because they see that here in Ottawa, it’s truly useful to parliamentarians. A bill has been tabled in Quebec to that effect.

I will build on what my colleague Senator Forest said about monetary policy and the interest rate. Not only are you talking about April, perhaps even with a rate cut — although this morning’s figures are in line with your own — but you’re also talking about 2.5% for 2025. That’s fairly substantial compared with the consensus among economists. Is that because you’re working with different assumptions about the neutral rate? The average economist is leaning towards 100 or 150 rather than 250 basis points of rate reduction, unless I’ve got the wrong table. I’d like an answer to that.

Mr. Giroux: We do seem to be more optimistic than some when it comes to inflation. This morning’s figures, as you mentioned, indicate that inflation is heading in the right direction. According to our projections, we believe that the economic conditions will be right for the bank to start cutting its interest rate in April. This doesn’t necessarily mean that the bank will do so, because that’s an opinion based on our projections, and the bank may have other reasons for delaying the interest rate cut somewhat.

That said, in our model, even if the rate cut didn’t happen in April, but rather in May or June, it won’t affect economic growth much in our forecasts. We estimate that the bank will lower its rate and that, by the end of 2024, the rate could end up at 3.5%, whereas it currently sits at 5%. This assessment is based on a number of factors, such as the strength of the economy, but also falling interest rates and inflation. The slowing economy, which is growing very little, and the fall in inflationary pressures that come, for example, from commodity prices — though oil is starting to rise a little — all these factors suggest that an interest rate cut in April is possible under current economic conditions.

Senator Gignac: On another matter, we’re going to take advantage of your presence today to ask you about the upcoming mid-April budget. As for your assumptions, in your early March report, you said that you were revising budget deficits upwards by an average of $7.9 billion per year over the next five years. To put it plainly, this would even mean that we’d be over $40 billion for the year that’s about to end, which would be beyond what the minister has committed to in terms of fiscal anchors. Do you think it’s possible for the government to meet its commitments without increasing the tax burden for Canadians? If you were consulted, how would you guide Ms. Freeland in her budget choices?

Mr. Giroux: Fortunately, it’s not my role to make suggestions about fiscal policy and the difficult choices to be made about economic and fiscal policy. What is forecast in our update is that, indeed, the deficit for the year ending March 31 should be around $47 billion. This is based on information available in February. It is therefore possible that the Finance Minister and Deputy Prime Minister has more up-to-date information allowing her to suggest that the deficit would be around $40 billion this year. We’ll see on April 16.

The government also pledged that the deficit will not exceed 1% of the economy in 2026-2027. Based on our projections, that will be difficult, because without including the disability benefit, there’s a national pharmacare program and significant growth in defence spending, and the deficit is already at 0.8% of the economy. There’s not much wiggle room if the government wants to stick to 1% or run a smaller deficit relative to the size of the economy in 2026-2027, and if it also wants to deliver on these commitments without raising taxes. There are many constraints looming on the horizon for fiscal year 2026-2027.

Senator Gignac: If I understand correctly, your projections don’t even take into account the commitments Canada would have to make to NATO, because we’re the only country that doesn’t have a plan to be at 2% of GDP in the next few years. Is the agreement between the NDP and the government on the national pharmacare program included in your projections?

Mr. Giroux: The national pharmacare program agreement is not included in our forecast, nor is a potential increase in the defence budget, nor the implementation of the disability program under Bill C-25, I believe, which received Royal Assent several months ago.

[English]

Senator Smith: Welcome again, Mr. Giroux and the people who are helping you raise all this information for us.

Moving to frozen allotments, which are funds Parliament has already been approved but have been frozen by the Treasury Board, they have so far increased by $4.1 billion compared to last year, but $1.4 billion of the $4.1 billion of these frozen funds is accounted for in the government’s Realigning Previously Announced Spending exercise, which is essentially reprofiling money that is either no longer needed or delaying funding for programs that are slower than anticipated in the rollout.

Simple question: Does this come down to a lack of preparation or organization on the part of the federal public service? What’s causing this?

Mr. Giroux: Frozen allotments can be frozen for a variety of reasons. The main reasons usually are because the proposals are not sufficiently developed for the Treasury Board to allow departments access to these funds so they wait until they get more detailed plans from ministers and departments. It can also be, as is currently the case, that the Treasury Board — the group of ministers — decides to freeze these funds so that they cannot be spent by departments in order for them to be booked as savings. I think the amounts you referred to fall in that category. It’s not necessarily bad planning; it’s rather prudent fiscal management most of the time when you have frozen allotments.

It can also be a sign that the Treasury Board does not believe the plans by the department are credible or make sense. In that case, it’s kind of a slap in the face of some departments, but that’s not what we’re talking about here. It doesn’t seem to be the case.

Senator Smith: I get a little concerned when I hear “slap in the face” and lack of preparation.

Mr. Giroux: Sorry —

Senator Smith: No, I’m not trying to be combative. I’m just trying to understand the inner workings of how things go.

With increases in frozen allotments during the pandemic, you understood uncertainty around COVID-19 created a lot of these frozen allotments, but what are the reasons now? You sort of brushed upon it, but are there specific reasons, and have you received anything from the departments that gives you some better understanding or some form of confidence in what they’re telling you?

Mr. Giroux: Well, a good portion of the frozen allotments are to ensure that the savings that the government announced or reprofiling or repurposing does indeed happen by freezing these amounts so that departments cannot beat them to the clock and use them for other purposes or spend them. That’s in good part why the $4.1 billion that you referred to has been frozen, so that it cannot be spent by departments, and they will be reallocated to other priorities or repurposed.

Senator Smith: As someone charged with trying to understand the inner workings of government, when you get this type of feedback, does it cause you concern, or does it help you to try to understand the situation better? It seems to be a game playing or juggling.

Mr. Giroux: It doesn’t concern me per se, but when I hear that funds have been frozen and there are frozen allotments, it suggests that the money will not really be saved. It won’t be spent for the intended, initial purpose, but instead it will be spent on other things that are yet to be announced. When I hear $4.1 billion in savings or frozen allotments, it suggests the money will not be used to reduce the deficit. It will rather be used to be spent on something else that remains to be defined.

Senator Smith: These estimates include about $2.2 billion for the Department of National Defence — I think some of it was raised earlier — which would bring the department’s total proposed authorities this year to just under $32 billion. In my experience when I was previously chair of the committee, dealing with National Defence was a bit of a challenge. I’m not sure if we were more frozen than they were in terms of projects that were suspended. From my experience, DND is notorious for reprofiling and freezing funds year over year and consistently unable to spend its approved budgets. In your review of the department, do you have any concerns about the department’s ability to meet its targets under Canada’s defence policy? Are these aligned and coordinated properly?

Mr. Giroux: Well, we’ve looked at the capital spending profile of DND a few times now, and the initial spending profile was showing a certain profile. A few years later, it showed that the spending was late getting off the ground, so things tended to be pushed in the outer years. The last report we released at the end of February showed that this is still happening. As opposed to having a 50-50 split in the first and second decade, it’s now looking more like 38-62. If you’re talking about a fixed envelope but you’re delaying the time at which you’re spending, in that case, purchasing equipment, it means that the purchasing power of these dollars in the second half of the period is worth less because of inflation.

That being said, the government also increased the overall amount due to commitments under NORAD. The overall size of the envelope has increased because of NORAD, but the spending seems to be pushed forward and slipped in time, as you pointed out, as the department is not able to fully implement its spending plans or capital plans.

Senator Smith: Is it realistic to think that we can achieve 2% of the budget in our National Defence spending so we can be aligned with some of the people who are actually hitting the target?

Mr. Giroux: In the short term, I don’t think it’s possible to do that. In the medium term, it certainly is possible, for a variety of reasons. The capacity can ramp up, so DND can recruit more Armed Forces members, but also the definition of the 2% under NATO includes Veterans Affairs and the Coast Guard. As strange as it may seem, if Canada were to enrich benefits for veterans or spend much more on the Coast Guard, that would contribute to reaching 2% of defence under the NATO definition. But if we were to focus on what people usually understand to be defence spending, it’s difficult to do in the short term.

Senator Smith: Thank you, sir.

[Translation]

Senator Galvez: Mr. Giroux, thank you very much to you and your team for coming to answer our questions; it’s always a pleasure to have you here. I’d like to understand the economic relations and money transfers from the federal government to the provinces.

[English]

When I see the changes in the forecast of the statutory spending, one of the largest changes is the $576.5 million that we are going to give as a stabilization payment to Alberta. It says it is to assist them with a year-over-year decline in the province’s revenues from bitumen from the year of 2019. We’re talking before COVID. But we all know that the oil companies are revealing record profits since COVID. I want to understand what the criteria are for making these big transfers and what the conditions are that this $500 million-plus is going to do for the province. Is it going to go for renewable energy or not going to do that because the province has banned the development of renewable energy?

Mr. Giroux: The way I understand it, the stabilization program is a federal program set up a long time ago to ensure that when provinces are suffering a year-over-year decline in their own-source revenues, there is some assistance from the federal government to ensure they don’t have to cut back significantly in their services. To my knowledge, it doesn’t include a clause that prevents some wealthy provinces, such as Alberta, or better off than the average, from receiving funding from the stabilization program. As to what provinces can do with the funding, again, to my knowledge, I don’t think there are conditions attached to how provinces can use these unconditional payments that are transferred from the feds to the provinces for them.

Senator Galvez: So you’re saying it’s unconditional? There are no conditions?

Mr. Giroux: To the best of my knowledge, but I’m not a specialist on the stabilization program.

Senator Galvez: You don’t know exactly how this amount is calculated?

Mr. Giroux: No. I would have to get back to you.

Senator Galvez: I would like to know. I remember reading the cut-off price for profit for Alberta oil was something like $60 a barrel, and we know that we are not going to be there. The last time a barrel was sold for $100 was in 2005. I think that this is very illogical.

My second question is a follow-up to what Senator Smith was talking about, the promise of the government to cut on consulting professionals and services and travel. In the report, we see that 94% of the organizations have not attained this reduction, or any type of reduction. With all these scandals about the use of external consulting companies and that they’re supposed to be reduced, you wonder what’s happening. These expenses are not going down. They sometimes are actually increasing. I believe you must have been following this for a while have an idea of how much the government is getting rid of its own expertise and giving it away to these consulting companies. Is this a problem where, instead of reducing, it is growing?

Mr. Giroux: As part of the $500 million in the current fiscal year that the government was expected to save, there was a commitment to reduce professional consulting services or consultant services by $350 million. That doesn’t sound like a big amount, and I don’t think it’s a big amount.

When it comes to overall spending on outside consultants, what we’ve seen is that it’s increasing still. Is that a problem? I’ve said a couple of times that, to me, when you have a growing public service at the same time as you have more reliance on consultants, that seems to be worrying.

As to whether there is an exodus of public service expertise that goes to consultants, there is anecdotal evidence that suggests it is the case in some instances, but I’m not sure if it’s a widespread problem or if it’s just happening in some limited instances. It’s not something that I have sufficient, detailed knowledge on to be able to comment on it.

Senator Galvez: If we were in an economy where there are no monopolies and oligopolies, I think I would accept the answer, but the fact is that in many sectors in Canada, we have oligopolies. Therefore, when you have these consulting companies, it is not rare that they work for both parts. They are sort of in a conflict of interest situation because they are advising people who may have contrary interests. I won’t cite any, but there are plenty of smaller scandals with respect to that.

Again, isn’t it worrying that, in the case of Canada, just, for example, food affordability and the fact we have an oligopoly and that nobody can point to really what is the problem because, again, these experts outside are in a conflict of interest? Wouldn’t you agree that in the case of Canada, this is a problem because we deal with oligopolies in many of the sectors?

Mr. Giroux: It’s true that, in many sectors, we have a limited number of players or companies that compete for consumers, and that can lead to situations of oligopolies. Airlines are a good example where, due to the size of the country and its population, there are not that many airlines serving some destinations. That can weaken competition and result in increased prices. Yes, I agree with you.

Senator Galvez: Thank you.

Senator MacAdam: Thank you for being here today.

Supplementary Estimates (C) seeks $2.2 billion for the Department of National Defence, yet one of the most crippling statistics available in this sector is that the Canadian Armed Forces are presently 16,500 personnel short of a combined regular and reserve strength of 115,000, which represents a nearly 15% shortfall in trained personnel. To highlight this point, on March 7, 2024, the defence minister stated that the Canadian Forces are facing a death spiral when it comes to recruitment, even as the government is constrained on more defence spending. Would you agree that Canada needs to refocus its defence spending on more foundational issues such as recruitment, for example? I want to get your thoughts on that.

Mr. Giroux: It’s clear that the shortage of Canadian Armed Forces members makes it difficult for the Canadian Forces to fully deliver on their mandate. There have also been reports that between 50% to 60% of the forces are able to be deployed at any point in time. That’s something that is worrying from a foreign and defence policy perspective. That being said, I’m not an expert on military issues. If the government decides that it wants to have an army, air force and marine that’s able to be deployed on short notice, obviously it needs to recruit more members and also accelerate the pace of equipment acquisition and renewal, because what we’ve seen is that it takes time to acquire major pieces of military equipment, such as the Surface Combatants or the F-35s, for which decisions have been postponed, and that results in CF-18s being the only fighter aircraft that are available.

Senator MacAdam: Thank you.

Senator Kingston: Thank you again for being here.

My questions will be around Jordan’s Principle and Indigenous Services Canada. My understanding is that not too much was done regarding Jordan’s Principle in terms of services or money spent, if you will, before 2017 and that Jordan’s Principle looked at a very narrow mandate in terms of what they should do. However, since the expansion in 2019, ISC approved requests in a few months of that year of 10,335 unique children under that program. How many children are expected to benefit from Jordan’s Principle in 2023-24?

Mr. Giroux: I don’t think we have that specific information from ISC. We didn’t seek it, so it’s a question that I think would be better addressed to the Minister of Indigenous Services.

Senator Kingston: There is quite a lot of money in your supplementary estimates for that. I’m wondering how that is to be spent.

Mr. Giroux: Just to be clear, these are not my supplementary estimates. These are the government’s supplementary estimates.

Senator Kingston: Point taken.

Mr. Giroux: We are providing information and analysis on that, but we don’t want to be held responsible for the content of the Supplementary Estimates (C).

Senator Kingston: It could be that you won’t be able to tell me either if the children are now being served in a timely fashion. There was a backlog, of course, before. Is that being caught up? Is that what this money, potentially, is for?

Mr. Giroux: Again, that is a very good question, and hopefully you’ll get a satisfying answer from the Minister of Indigenous Services.

Senator Kingston: Thank you.

Senator Pate: Thank you again to the witnesses.

I’m also talking about ISC. In these Supplementary Estimates, they have over $818 million for child and family services, including for improving “services which preserve the ability for children to be cared for in their communities, such as ameliorating the impact of poverty …” The delivery of these resources and services is essential; however, we’ve had difficulty finding information about how these funds will actually address poverty. Particularly, we’re seeking information to help assess how effective this funding will be in reaching and supporting people most marginalized and most in need, an issue which has been, of course, of central importance to groups like the National Inquiry into Missing and Murdered Indigenous Women and Girls, who have recommended things like a guaranteed livable income, and whether there’s any assessment of what measures may be being looked at and how they might compare to that type of approach and lifting people out of poverty.

I’m also curious whether you have further insights into which services ISC is proposing to improve, how these programs might compare to the MMIW recommendation for a GLI and how effective they will be in reaching those in need, as well as their potential for downstream cost savings for the child welfare system and countless other systems including health care, emergency shelter systems, et cetera.

Mr. Giroux: We don’t have that level of program information based on our analysis of the Supplementary Estimates. That’s probably the same answer I gave to your colleague. They are good and interesting questions, and I hope the Minister of Indigenous Services would be able to provide you with a satisfactory answer.

Senator Pate: In addition to these questions for the minister, are there other questions you would suggest we ask about how this funding might compare to potential alternative options for addressing poverty in terms of reaching folks who are most at risk in a meaningful way and creating opportunities for downstream savings?

Mr. Giroux: A good question would be whether the department is tracking these as performance indicators of the performance of his own department.

Senator Pate: Okay, thank you.

Mr. Giroux: And I’m not sure that they do.

Senator Pate: Okay.

I want to come back to Jordan’s Principle a bit. I heard your answers to my colleague, but I’m wondering if there are any indicators regarding how much of the amounts that have been allocated will be going directly to First Nations children versus being required to meet program administration costs or other costs for government, given that you’ve mentioned the fact that a fair amount of the estimates money seems to be going to program delivery.

Jill Giswold, Senior Analyst, Office of the Parliamentary Budget Officer: Our understanding is that the entirety is for program delivery. The details of what that entails, we unfortunately don’t have.

Senator Pate: So another question for the minister. He has lots of questions.

Are there questions regarding this programming funding that you would suggest we also ask anybody else who will be appearing before the committee in addition to Indigenous Services Canada in terms of the interconnections?

Mr. Giroux: Maybe the Minister of Crown-Indigenous Relations, as there are often some programs delivered that are done in partnership with First Nations communities or outside organizations.

Senator Pate: Great. Thank you very much.

Senator Loffreda: Thank you once again for being with us, and thank you to your team also.

Part of investing in Canada’s future economic success is investing in its students and helping more Canadians reach post‑secondary education. That is why it is important that the government makes grants and loans available to those unable to afford the cost of education.

These Supplementary Estimates (C) contain a $499 million increase in forecasted statutory amounts for student grants and $1.3 billion for student loans. As we know, not all student loans are repaid, and the government must seek parliamentary approval each year to write off student loans that are deemed uncollectible. This year, the Supplementary Estimates (C) requests $260 million to write off 20,201 debts, a decrease from last year’s $227 million and 23,142 debts.

As you write in your report, some volatility in the actual amounts written off from year to year is to be expected as decisions around which loans to write off is a multi-step process. Can you share your thoughts on these figures, these numbers and the process? How long does it take for the government to determine a debt is uncollectible, if you can share that? We know they’re not your numbers, but we appreciate your insightful comments and analysis. Do you have any thoughts what could be done to reduce the number of write-offs? Obviously, we won’t settle this in five minutes, but maybe just a few pointers that we could take a deep dive into in the future.

Mr. Giroux: Sure. As you pointed out, a variety of factors come into play when determining whether to write off a debt. It’s ultimately a public servants’ decision. They first look at loans that are in arrears. There is a variety of relief programs available for those under financial duress, losing a job, facing difficult financial times. There is relief available for those who cannot repay or who cannot make their regular payments.

Once these relief measures are exhausted — for example, if somebody refuses to pay but has a job — the government tries to recoup the money through, for example, tax write-offs, so recuperating some tax refunds that those in default could be able to receive. If or when the debt cannot be written off because the person cannot be found, has left the country or has gone bankrupt, that’s where the decision to write it off is made after all these steps have been exhausted. Write off doesn’t mean that the government refuses to recover it. If the person who is in default does not pay, it’s written off, of course, but if they come back and they are financially able to repay, the government can recuperate some of that money, and that does happen. That’s, in a nutshell, the process.

It can take a number of years to get to the point of writing off, depending on whether a person is prevailing themselves of the relief measures or not. If they’ve gone missing and they don’t give a sign of life, it can be in a matter of a few years, but if they are helping themselves and they are showing some willingness, it can take several years to the point it’s written off.

Senator Loffreda: I know historically the numbers are all there, but with respect to the process to reduce the write-offs, which I see you’re very familiar with, is there anything that could be done to reduce these write-offs or to improve our efficiency going forward? These are hard-earned Canadian tax dollars.

Mr. Giroux: The government has announced that interest rates will effectively be zero for the foreseeable future. That’s a very good way to ensure that the number of write-offs goes down, because an interest rate at 0% will mean that the overall size of the debt for an individual student will stop growing the moment they stop going to school. They won’t have to pay interest. The size of the debt will stop growing once they graduate or stop attending school. That is a good way.

The relief measures that I mentioned have also been a good way to reduce the number of write-offs because students who are in financial difficulty see that the government is doing its part to provide them with relief. There is probably an element of good faith in that, when the students become financially comfortable, they are more willing to repay their student loans. What we measure improves, as we all know.

Senator Loffreda: With respect to recoveries, where do you see it going? Do we have statistics? Is it improving? Is there a sustainable number of recoveries? We see staff increasing all over the public service. Has staff increased with respect to trying to recover bad debts?

Mr. Giroux: I do not have these numbers off the top of my head. I have not looked at that recently. I would have to get back to you on that specific metric, or if you have the pleasure of having the minister in front of you, you could ask the minister.

Senator Loffreda: Sure. I would like to see those numbers. Increased staff would be a great investment to have some of these hundreds of millions of dollars recovered. We all love our students, and I think it is very important to make those loans, but we have to teach them responsibility too, right?

The Chair: Thank you, senators. We will now move on to second round.

Senator Marshall: Mr. Giroux, could you just go back to the issue of professional services that we were discussing earlier? Several senators raised it. I know the government said that they were going to cut $350 million, but the budget, based upon the numbers that I have seen, has actually increased. You said in your response to one of my colleagues that they could have increased the budget but they could freeze a certain portion of the budget. Would you know whether they have frozen any of the budget for the current fiscal year just ending now?

Mr. Giroux: Yes. That was part of our report when we spoke about refocusing or repurposing government spending. They actually froze amounts in departmental reference levels, as we call these.

Senator Marshall: They have frozen the $350 million, but they have actually increased the budget by over a billion.

Mr. Giroux: The net would be an increase that is slightly lower than otherwise.

Senator Marshall: That is what I wanted to clarify. You were saying that, in your opinion, you do not see the freezing of the budget as being — I am looking for your words — almost like not a bona fide cut. Could you clarify your comments on that?

Mr. Giroux: What I mean by that is that freezing $500 million, for example, in an operation of $500 billion is like you and I dropping a quarter or something like that.

Senator Marshall: It is.

Mr. Giroux: Freezing $4 billion is like us giving $20 for something. It is not material.

Senator Marshall: Okay.

Mr. Giroux: As I said, it is repurposing in some cases. It is not spending it on something; it is spending it on something else.

Senator Marshall: It does not appear sincere, and that’s my word. Okay, thank you.

I was looking at your report on the economic and fiscal outlook. I looked at the Appendix G, the federal debt outlook. I notice that for the end of this fiscal year, your number is $1.6 trillion for the debt, rising to $1.7 trillion the next year and then $1.8 trillion. It seems that they are now getting close to the ceiling. The ceiling is just over the $1.8 trillion. Would it be fair for me to ask if you would expect to see an increase in that ceiling in the budget that is coming down next month?

Mr. Giroux: Yes. I would expect to see an increase in the ceiling under the Borrowing Authority Act, or certainly in the Budget Implementation Act or this fall. The government would probably be prudent to increase the ceiling.

Senator Marshall: They are getting close. Thank you.

My third question is on the personnel. I did read your report on personnel. You were talking about the costs and the full-time equivalents. When you look at Supplementary Estimates (C), the personnel costs are now $60 billion. There are going to be a number of transactions that will be recorded as personnel expenditures. Those would be employee benefits and things of that nature. That amount is quite substantial, or it was last year. Are you able to give us a number as to what you think that adjustment is going to be? Personnel expenditures right now are at $60 billion. Do you expect it will go to $70 billion? I am just trying to get a handle on the numbers.

Mr. Giroux: It is possible, but it would be surprising for it to go that high that quickly. We can see if we have a forecast for that specific amount — the adjustment, the other payments for personnel services — and we can give that to you.

Senator Marshall: Do you have a number that you can give us?

Mr. Giroux: I do not know if we have that detail. No, I do not think so. We have aggregate amounts, but I do not know if we have disaggregated the personnel going forward.

Senator Marshall: If you could provide that, that would be great.

I have a question on some of the numbers for personnel. You look at the final number in Supplementary Estimates (C), but that is not really the final number because those accruals are going to go through.

You mentioned the interest in your report on Supplementary Estimates (C). If you add up the two numbers that are there under the Department of Finance, you actually come up with about $42 billion or $43.5 billion. The fiscal update says it is going to be $46.5 billion. Did the department overestimate the costs, or do we expect to see another $3 billion? I know it is statutory.

Mr. Giroux: We could see another $3 billion for the pension and future benefits or the other liabilities that are recorded but are not marketable debt, for example.

Senator Marshall: The accrual.

Mr. Giroux: Or market debt.

Senator Marshall: Thank you, Mr. Giroux.

Mr. Giroux: It is always a pleasure to discuss this with you, senator.

[Translation]

Senator Forest: In your report on Supplementary Estimates (C), you announce that, in the coming weeks, you will be publishing an analysis of planned capital spending under Canada’s defence policy. What will this report cover? Will it take into account the upstream steps involved in drawing up specifications and calls for tender? Will these be included in your report?

Mr. Giroux: Thank you for the question. We can refer to it in the past tense, as this report has now been published. Between the time our report on Supplementary Estimates (C) was published and now, we issued a report on the Department of National Defence’s capital spending under its 20-year long-term plan for capital expenditures. We looked at the spending profile. We also looked at the list of all projects that require funding, to see if things are proceeding at the speed and pace anticipated by the department. We came to the conclusion that spending is generally delayed. Instead of a 50/50 split over 20 years between the first and second decades, the split is more like 38% and 62% in the second decade. So we’re deferring a significant portion of spending to the future.

Senator Forest: You didn’t examine the process for developing the specifications or the tendering process, then. Let’s look at things from an outside observer’s point of view, so outside Parliament. They can see what happened with ArriveCAN and the marine procurement policy, with all the delays and cost overruns. Phoenix and a number of other cases come to mind. In light of that, it seems to me we really need to take a close look at the processes. In fact, Quebec minister Jonatan Julien said that he wanted to review the process at the front end.

How are the needs identified? How are the goods the government is looking to acquire defined? How is the tendering process defined? Does your report take into account the pre‑procurement process?

Mr. Giroux: We tend to focus on the numbers and cost estimates related to the process or equipment itself. For example, we examined the estimated cost of the surface combatant ships and the F-35s, but we didn’t examine the actual tendering process. I think that would be a good area for the Auditor General to look into, since it falls more within her purview, in other words, considering ways to improve the management and procurement processes for large equipment.

Senator Forest: That would definitely be a good issue to look into. A common finding is that cost overruns almost always occur.

The reason that’s given is the emergence of new requirements or additional elements, so it’s somewhat easy to defend cost overruns that verge on excessive when it comes to contracts like these.

Mr. Giroux: That’s true, but when the requirements change after the call for tenders has been put out, it may mean that the requirements weren’t properly identified to start with. It may mean that more thinking and planning are needed beforehand, as you pointed out, so that the tendering process is easier for bidders to follow.

Senator Forest: Another issue is the loss of expertise in many areas of government. I imagine it’s the same for the Government of Canada. That significant loss of expertise makes it difficult today to properly identify requirements and estimate those costs.

Mr. Giroux: Retaining expertise tends to be a problem, especially when it comes to major procurement projects involving specialized equipment. That’s an issue cited by the Department of National Defence and Public Services and Procurement Canada.

Senator Forest: Thank you. I’m going to follow up with the Auditor General.

Senator Gignac: I want to follow up on your discussion with Senator Marshall about the debt ceiling.

We know that when the U.S. gets close to its debt ceiling, it becomes a big problem and elected officials enter into negotiations.

Can you compare the situations in Canada and the U.S.? When was the last time the debt ceiling had to be raised in Canada?

Mr. Giroux: To my knowledge, the last time the debt was raised was during the pandemic, but an increase may have been made since.

The level of negotiations isn’t the same when the debt ceiling is raised in Canada, because it’s usually done through a bill or a budget implementation bill. That means it’s part of a suite of budget measures in what is often omnibus legislation. The raising of the debt ceiling is just one of several dozen measures in the bill.

It’s not something that is done annually. It’s done every few years to ensure that the government has enough latitude.

Senator Gignac: I’ve been a senator just two years, so this is the first time I’ll see it done. I was on the other side during the pandemic, working as a commentator.

Simply put, senators here don’t really have the same power they do in the U.S. We can’t really force the government to propose a plan or make the government do anything. It’s similar to the process for budget implementation bills. Yes, we can ask questions and all that, but at the end of the day, we can’t really stop the government from governing. Do I have that right?

Mr. Giroux: I’m no expert on the separation of powers between the two houses, but obviously, you have a lot of power when it comes to budget implementation bills. I don’t know how much ability the Senate has to lower the debt ceiling, since a budget implementation bill is obviously considered a question of confidence in the government. The government’s receptiveness to lowering the debt ceiling isn’t within my purview.

Senator Gignac: Thank you.

[English]

Senator Galvez: Mr. Giroux, there is something that looks contradictory to me. On the one hand, it is promised that we are going to reduce expenses in consulting and professional services, but, on the other hand, we are also increasing the personnel spending. On the one hand, we are saying, “No, no, we will pay you 6.6% more, but, at the same time, I have to give away more consulting.” To me, somebody is not doing their job.

While my colleagues have referred to the usual suspects, ArriveCAN and Phoenix, I have followed more the case of the infrastructure bank, which is, let’s say, much bigger than the other two scandals. When the infrastructure bank was founded, it came out of a recommendation from a consulting firm, McKinsey. McKinsey is an American company that is affiliated with BlackRock. Actually, many people believe that the mandate of the infrastructure bank, which is supposed to be a public infrastructure bank, went more towards privatization. By all means, bring in private money so that we can construct, but is becoming difficult for the municipalities, who have a massive infrastructure deficit, and it is amplified by the extreme weather events.

Really, this fight between increasing and giving money away for consulting worries me. It is bringing conflict of interest and bringing advice on public money. On the other hand, we are still increasing the personnel spending. Do you think that an extended review of the methods, as you were discussing with Senator Forest, could be beneficial? I know that you say it should be work for the Auditor General, but maybe you can give us some leads so that there are more important things to be looked at in an accelerated way.

Mr. Giroux: Your question has many angles.

When you say that you are worried about the increasing size of the public service at the same time as we are seeing an increased reliance on professional services, I have expressed the same concern many times myself. To me, if we are increasing the size of the public service, we should be recruiting the people that we need. That should, normally, reduce the need for professional services. If we are increasing both, maybe it suggests that we are not increasing the public service enough or that we are not recruiting the right people we need to actually do the job.

Senator Galvez: Yes.

Mr. Giroux: It could also be that the government needs to get advice from outsiders because it either doesn’t trust the advice of the public service or it is not getting the services it expects from the public service. That raises many questions.

As to whether there should be an external review of procurement, which I think you were referring to — or not specifically procurement?

Senator Galvez: More globally, on methods and procedures.

Mr. Giroux: Yes. I think that there is enough expertise inside the public service to be able to look at that. There are bright people who are leading the public service who should be able to look at ways of improving the public service itself. If there is a need for an external look, the Auditor General has a team of experts who could be very helpful in helping departments improve their own operations. Indeed, most departments have an internal audit function, audit and evaluation. I’m sure that there are nuggets of knowledge and a wealth of information as to how to improve processes and operations of departments in these dispersed internal evaluations in audits.

Senator Galvez: Thank you.

I am reading a lot of the work of Mariana Mazzucato. Does what she is proposing ring a bell for you by any chance?

Mr. Giroux: It does, but I am not knowledgeable enough to be able to have an intelligent conversation that is recorded and broadcast on that topic.

Senator Galvez: I will get you a coffee.

Senator MacAdam: The Supplementary Estimates (C) include an increase in personnel spending of $2.4 billion. Your report indicates that roughly half of that is for salary negotiations. I wonder what makes up the other $1.2 billion. Is it certain departments that make up the majority of that? How is that distributed? Is it salary increases or wage increases, or is it more personnel? Any information that you have on that would be useful.

Ms. Giswold: Thank you for the question.

Aside from the large item for the Treasury Board Secretariat, there aren’t specific items for the rest of the funding. Personnel spending includes salaries and wages, as you mentioned, as well as the employee benefit plans for the public sector. The rest of the funding would be sprinkled across departments for those reasons, so it is not one specific item necessarily.

Senator MacAdam: It is all across departments?

Ms. Giswold: Yes, exactly.

Senator Kingston: Following up, I’m talking about items related to child welfare and Indigenous Services. In a document of yours, it says that some of this funding, $818 million:

. . . will improve services which preserve the ability for children to be cared for in their communities, such as ameliorating the impact of poverty and remoteness as well as improving the availability of safe and adequate housing for children on reserve.

Do you have any further information on that? The Auditor General, for instance, today talked about the ongoing problem of mould in housing on reserve. Is that a part of this? Is there any more detail on what that might go to?

Ms. Giswold: Unfortunately, we do not have details. Indigenous Services would be better placed to provide those details.

Senator Kingston: I will ask one more question that has to do with the $260 million for emergency management. That is under this big $2 billion chunk. Do you have any details on that?

Mr. Giroux: Yes. It is usually money to help First Nations communities that suffer from emergencies. One can think about wildfires or flooding. That is money to compensate the department. At this point of the fiscal year, it is money that it probably already has spent in these areas over the fiscal year that it needs to ensure it does not blow its vote.

Senator Loffreda: Mr. Giroux, while it is important that the government provides essential services to all Canadians, it is equally important that the government spends responsibly to ensure the overall health of the Canadian economy in the future. I think we would all agree with that.

These Supplementary Estimates (C) indicate that the Treasury Board has administratively frozen $11.9 billion in money already approved by Parliament. While this is an increase of $4.1 billion from last year’s final supplementary estimates, only $2.9 billion are reductions, $500 million of which relates to refocusing government spending to deliver to Canadians and exercise a plan which, as you described in your report, looks to reduce the pace and scale of growth in government spending and returning to the pre-pandemic path.

I know you also published a separate report on this cost-reducing exercise in mid-February. Your reports are always very insightful. As I always say, I enjoy reading them. Can you elaborate and further share with us some of your findings? How confident are you that the government will achieve its goal of reducing spending on consulting, professional services and travel? In your assessment, how likely are we to return spending back to pre-pandemic levels?

Mr. Giroux: The amount that was frozen related to refocusing government spending. I think that is the amount that you are referring to, the $500 million?

Senator Loffreda: Yes.

Mr. Giroux: Because the amounts were frozen, I’m fully confident that these amounts will not be spent. There was $150 million for travel and $350 million for professional services. Because it has been frozen, it is clear that it won’t be spent. While this will not be spent, if the government increases its appropriations or appropriations are increased to increase spending in these two categories in other vehicles, then it is possible that overall spending on travel can increase, or spending on professional services can increase. In response to a question from one of your colleagues, even if that were the case, it would increase by less than it would have without the frozen allotments.

I am sorry, what was the other part of your question?

Senator Loffreda: How likely are we to return spending back to pre-pandemic levels?

Mr. Giroux: I do not think that is likely because of the current structure of overall spending. We have indicated in our economic and fiscal outlook that the overall level of spending is scheduled to increase at a regular pace over the next several years. It is very unlikely that we will see a return to pre‑pandemic levels of spending.

Senator Loffreda: Thank you.

Senator Pate: Mr. Giroux and team, I want to return to the student loans. In your report about the supplementary estimates, you said it is anticipated that the amount written off for student loans will continue to decline due to the government’s decision to permanently waive interest on student loans. Can you provide a general estimate on how much the government can anticipate saving in this area? What can be saved on student loans that would otherwise have been written off in the next fiscal year? How much do you anticipate this amount of written-off student loans will continue to decline over the next few years?

It looks like you have a graph right there.

Mr. Giroux: I am very well supported.

The interest component of the write-offs varies between $35 million and $40 million per year. As the interest rate decreases to zero, this is expected to also progressively go down to zero. The last year in our chart is 2027-28. In that year, the interest component of write-offs is expected to be $8 million. It will be getting very close to zero by the end of this decade. The write‑offs themselves are increasing, and they are expected to remain relatively high next fiscal year, the one that starts in 2024‑25, April 1, at $17.7 million. As the interest rate goes down to zero and the relief measures during the pandemic make their way into the system, the write-offs on the principal should start to decline the following year and reach $159 million in 2027-28. It is a gentle decline, but a much steeper decline in the interest component of the write-offs.

Senator Pate: Thank you.

The Chair: This, honourable senators, brings us to the end of our meeting.

Mr. Giroux, again, thank you. I would like to remind the witnesses to please submit written responses — I know that there are a few questions that you will want to submit a response — by the end of the day on Wednesday, April 3, 2024, through the clerk of our committee, the Standing Senate Committee on National Finance.

Honourable senators, I would like to remind you that our next meeting will be tomorrow evening, March 20, 2024, at 18:45 on the subject matter of Bill C-59.

On behalf of all senators, I would like to thank the entire support team for this committee, those in the front of the room as well as those behind the scenes who are not visible. Thank you all for your hard work that contributes enormously to the success of our work as senators. As we say where I come from, a job well done.

(The committee adjourned.)